Service Station Accounting


You will not find "service station accounting" in an accounting textbook (at least not until I write one). Instead you will find that there are two basic kinds of accounting: cash method and accrual method of accounting. The cash method is "calling it income when you deposit the money and calling it an expense when pay the bill." The accrual method is "calling it income the moment you write the sales ticket even though the customer may not pay it until next month and calling it an expense the day the bill arrives in the mail even though you may not pay it until next month."


We actually use a "hybrid" method of accounting for most service stations. We use the accrual method for sales and cost-of-goods sold but the cash method for most expenses.


We do not usually speak much about Cash, Accrual, or Hybrid methods of accounting when talking to a service station owner. We have already made that decision. A hybrid method works best. Instead we start from this question:

We can do your accounting effectively either using your checkbook or working from receipts. But it has to be one or the other.


  1. Checkbook-driven accounting is better from an accounting point-of-view.
  2. But checkbook-driven accounting is very time-consuming for the owner.
  3. Receipts-driven accounting is easier for the owner and he will do it more thoroughly.
  4. If the owner writes a check but does not give us a receipt, we will not know to deduct the item.
  5. Receipts-driven accounting is a better way of dealing with the many paid-outs.

The Elements of Receipts-Driven Accounting

What the owner provides:
  • We need something that tells us what the sales by categories were each month.
    1. Today most stations can print a computer-generated report. That is what we prefer.
    2. Some stations still use old-fashioned Daily Sales Books. We accept them.
    3. We want to know the total sales of the following categories that apply:
      1. Gasoline
      2. Diesel
      3. Cigarettes
      4. Beer
      5. Vending
      6. Deli
      7. Tires
      8. Batteries
      9. Parts
      10. Labor
      11. Other categories for special situations
  • Next we need of the purchases receipts and invoices.
    1. We need all of the purchases receipts whether they have been paid or not.
    2. By "purchases" we mean items purchased for resale.
  • Next we need a physical inventory each month.
    1. The inventory must be taken as close to the last day of the month as possible.
    2. If you cannot find an inventory company to do it at the end of the month, you should do it yourself.
    3. Some owners want to take inventory only once a quarter or only at the end of the year. This is not good.
  • Next we need all paid receipts or invoices for expenses.
    1. If you pay for an expense by cash or check and do not get a receipt, then make your own.
      1. Write on a sheet of paper the following:
        1. whom paid
        2. date paid
        3. amount
        4. check number or the word "cash"
        5. name of expense, for example, Supplies, Repairs, etc.
    1. If you do this sparingly, consistently, and, most important, immediately when it happens, IRS will accept "home made" receipts.
    2. Circle the amount you paid, even when there is only one figure on the receipt.
      1. For example, your utility bill may have a net amount of $455.23 and gross amount of $461.11.
      2. Whichever figure you pay, circle it to tell us and the IRS which amount you paid.
      3. If you paid by check, write the check number and the date.
      4. Even if there is only one figure on the receipt, circle it for two reasons:
        1. We can find the figure more easily.
        2. It is important for other reasons that you do your paper work the same way consistently.
  • Send us your payroll information.
    1. Use our payroll sheets if you still write payroll checks manually, or
    2. send us your end-of-the-month detailed payroll summary, or
    3. or use our Payroll Check-Writing Service
  • Send us your bank statement and credit card settlement statements. There are some expenses on the bank statement that we cannot know about from any other source.
    1. monthly bank service charges
    2. charges for returned checks
    3. various automatic drafts

    ...and please!

    1. Do not use excessive staples. Use as few as possible.
    2. Unfold folded up invoices and receipts before sending them to us.
    3. Place all invoices and receipts face up.